Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating To Extension of Time Requests, 45879-45882 [E6-13007]

Download as PDF
Federal Register / Vol. 71, No. 154 / Thursday, August 10, 2006 / Notices
general, to protect investors and the
public interest. Nasdaq believes that the
proposed rule change clarifies certain
terms in Nasdaq Rules.
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.16
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IV. Solicitation of Comments
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section
19(b)(3)(A)(iii) of the Act 11 and Rule
19b–4(f)(6) thereunder,12 because it: (i)
Does not significantly affect the
protection of investors or the public
interest; (ii) does not impose any
significant burden on competition; and
(iii) by its terms, does not become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest.13
Nasdaq requests that the Commission
waive the 30-day operative period under
Rule 19b–4(f)(6)(iii).14 The Commission
believes that it is consistent with the
protection of investors and the public
interest to waive the 30-day operative
delay and make this proposed rule
change immediately effective upon
filing on July 28, 2006, because the
proposal merely incorporates certain
clarifying changes made in the NASD
Filing into Nasdaq Rules and corrects a
typographical error.15
At any time within 60 days of the
filing of such proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
11 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
13 As required by Rule 19b–4(f)(6)(iii) of the Act,
Nasdaq provided the Commission with written
notice of its intent to file the proposed rule change,
along with a brief description of the text of the
proposed rule change, at least five business days
prior to the date of the filing of the proposed rule
change.
14 17 CFR 240.19b–4(f)(6)(iii).
15 For purposes only of waiving the 30-day
operative delay of this proposal, the Commission
has considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an E-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2006–020 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2006–020. This
file number should be included on the
subject line if E-mail is used. To help
the Commission process and review
your comments more efficiently, please
use only one method. The Commission
will post all comments on the
Commission’s Internet Web site (http://
www.sec.gov/rules/sro.shtml). Copies of
the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of Nasdaq. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
All submissions should refer to File
Number SR–NASDAQ–2006–020 and
should be submitted on or before
August 31, 2006.
16 See section 19(b)(3)(C) of the Act, 15 U.S.C.
78s(b)(3)(C).
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45879
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.17
Nancy M. Morris,
Secretary.
[FR Doc. E6–13024 Filed 8–9–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54265; File No. SR–NASD–
2006–064]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto
Relating To Extension of Time
Requests
August 2, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 15,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by NASD. On May
25, 2006, NASD filed Amendment No.
1 to the proposed rule change.3 On July
25, 2006, NASD filed Amendment No.
2 to the proposed rule change.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to adopt new Rule
3160 to require (1) all clearing firm
members for which NASD is the
designated examining authority
(‘‘DEA’’) pursuant to Rule 17d–1 under
the Act to submit to NASD requests for
extensions of time under Regulation T
promulgated by the Federal Reserve
Board (‘‘FRB’’), or pursuant to Rule
15c3–3(n) under the Act; and (2) each
clearing firm member for which NASD
is the DEA to file a monthly report with
NASD indicating all broker-dealers for
which it clears that have overall ratios
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, NASD made nonsubstantive changes to the discussion of the
purpose of the proposed rule change.
4 Amendment No. 2 replaces and supersedes the
original proposed rule filing and Amendment No.
1 in its entirety.
1 15
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Federal Register / Vol. 71, No. 154 / Thursday, August 10, 2006 / Notices
of requested extensions of time to total
transactions for the month that exceed
a percentage specified by NASD. Below
is the text of the proposed rule change.
Proposed new language is in italics.
*
*
*
*
*
3160. Extensions of Time Under
Regulation T and SEC Rule 15c3–3
(a) When NASD is the designated
examining authority pursuant to SEC
Rule 17d–1 for a member that is a
clearing firm, such member must submit
requests for extensions of time as
contemplated by Sections 220.4(c) and
220.8(d) of Regulation T of the Federal
Reserve Board and SEC Rule 15c3–3(n)
to NASD for approval, in such format as
NASD may require.
(b) Each member that is a clearing
firm for which NASD is the designated
examining authority is required to file a
monthly report with NASD in such
format as NASD may require, indicating
all broker-dealers for which it clears
that have overall ratios of requests for
extensions of time as contemplated by
Sections 220.4(c) and 220.8(d) of
Regulation T of the Federal Reserve
Board and SEC Rule 15c3–3(m) to total
transactions for the month that exceed
a percentage specified by NASD. The
report is due to NASD within five (5)
business days following the end of each
reporting month.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. NASD has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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Background
Regulation T, issued by the Board of
Governors of the Federal Reserve
System (‘‘FRB’’) pursuant to the Act,
among other things, governs the
extension of credit to customers by
broker-dealers for purchasing
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securities.5 Rule 15c3–3 under the Act,
among other things, requires brokerdealers to promptly obtain and maintain
physical possession or control of
customer securities and designates
periods of time within which brokerdealers must cure any deficiency by
buying-in or otherwise obtaining
possession or control of the securities.6
Under SEC Rule 15c3–3(n), a selfregulatory organization (SRO) may
extend certain specified periods to buyin a security, for one or more limited
periods commensurate with the
circumstances, where the SRO: (1) Is
satisfied that the broker-dealer is acting
in good faith in making the request; and
(2) exceptional circumstances warrant
such action.7 Regulation T has a similar
standard to allow an extension of time
for payment for purchases of securities.8
The SROs that process extension
requests, including NASD, have
developed standards and procedures for
evaluating, granting, denying, and
controlling extension requests. The
standards include acceptable reasons for
requesting an extension, number of
extensions permitted per reason, and
special limitations and restrictions on
customers.9
Required Submissions of Requests for
Extensions of Time
Proposed NASD Rule 3160(a) would
require all clearing firm members for
which NASD is the designated
examining authority (‘‘DEA’’) to submit
to NASD requests for extensions of time
under Regulation T and SEC Rule 15c3–
3(n). While Regulation T currently
requires that extension of time requests
be directed to a broker-dealer’s DEA,
Rule 15c3–3(n) provides that a brokerdealer may request an extension of time
from any registered national securities
exchange or a registered national
securities association.
The SEC previously approved NYSE
Rule 434 requiring each firm for which
the NYSE is the DEA to submit
extensions requests to the NYSE.10 The
5 12 CFR 220.4(c) and 220.8(d). Regulation T
provides that a customer has one payment period
(currently five business days) to submit payment for
purchases of securities in a cash account or in a
margin account.
6 17 CFR 240.15c3–3.
7 See Rule 15c3–3(n), authorizing SROs to extend
the periods of time to buy-in a security specified in
Rule 15c3–3(d)(2), (d)(3), (h), and (m).
8 Under Regulation T, a firm’s examining
authority may grant an extension unless the
examining authority believes that the broker-dealer
is not acting in good faith or that the broker-dealer
has not sufficiently determined that exceptional
circumstances warrant such action.
9 See NASD Notice to Members 00–45.
10 See Exchange Act Release No. 34073 (May 17,
1994), 59 FR 26826 (May 24, 1994) (SR–NYSE–88–
35) (SEC Order Approving Proposed Rule Change
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SRO designated as a member’s DEA has
responsibility for examining its
members that are also members of
another SRO for compliance with
applicable financial responsibility rules
such as Regulation T and Rule 15c3–3.
Requiring a member to submit extension
requests to its DEA helps to ensure that
the DEA receives complete extension
information to assist it in performing
this function. Such information, among
other things, can serve as an early
indicator of operational or other
difficulties. Approval of the proposed
rule change also would ensure uniform
application of standards to all customers
of firms for which NASD is the DEA.
For these reasons, NASD believes that
this proposed rule change would create
a more effective review of extension
requests.
Monthly Reporting Requirement
Proposed NASD Rule 3160(b) would
require each clearing firm member for
which NASD is the DEA to file a
monthly report with NASD, in such
format as NASD may require, indicating
all broker-dealers for which it clears that
have overall ratios of requests for
extensions of time as contemplated by
Sections 220.4(c) and 220.8(d) of
Regulation T of the Federal Reserve
Board and SEC Rule 15c3–3(m) to total
transactions for the month that exceed
a percentage specified by NASD.11 The
monthly report will require clearing
firms subject to proposed Rule 3160(b)
to identify, among other things: (1) The
broker-dealer’s name; (2) the number of
transactions by the broker-dealer for the
month; (3) the number of extension
requests for the month; and (4) the ratio
of the number of extensions requested to
total transactions. Under the proposal,
NASD would require that the reports be
submitted no later than five business
days following the end of each reporting
month. For months when no brokerdealer exceeds the criteria, the clearing
firm would submit a report indicating
such.
Consistent with the NYSE’s
program,12 NASD anticipates restricting
by the NYSE Relating to Extensions of Time for
Payment of Delivery of Securities). See also NYSE
Information Memo 94–22 (June 10, 1994).
11 Rule 15c3–3(m) (Completion of Sell Orders on
Behalf of Customers) requires that if a security sold
long by a customer has not been delivered within
10 business days after the settlement date, the
broker-dealer must either buy the customer in or
apply for and receive an extension from the SRO.
12 See Exchange Act Release No. 28726
(December 28, 1990), 56 FR 540 (January 7, 1991)
(SR–NYSE–89–24) (SEC Order Approving NYSE
Proposed Rule Change Relating to Reporting of
Extensions of Time for Payment/Delivery of
Securities by Correspondent Broker-Dealers); NYSE
Information Memoranda 98–09 (March 5, 1998) and
94–22 (June 10, 1994); see also NYSE Information
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the number of Regulation T and Rule
15c3–3(m) extension requests to 1% of
total transactions for the month for
clearing firms and 3% of total
transactions for the month for
introducing firms.13 NASD currently is
able to compute the ratio of extensions
requested to transactions for clearing
firms based on information provided in
the extension requests and FOCUS
report data; however, NASD would use
the information submitted by the
clearing firms in the new monthly
report to monitor introducing firms’
compliance with the anticipated 3%
threshold. NASD is creating a new
template within its existing electronic
filing platform to permit clearing firms
to submit the required electronic reports
regarding their introducing firms’
extension requests.
To the extent that firms exceed the
proposed threshold limits, NASD will
inform them that their ability to receive
extensions for their customers will be
stopped for a 90-day period if such firm
does not reduce the number of
subsequent requests below the
applicable limit by the next reporting
period.14 NASD also intends to direct
clearing firm members to impose limits
on introducing firms only where the
introducing firm engages in 25 or more
transactions per month. NASD believes
that these limits are appropriate in light
of the standard set forth in Regulation
T and Rule 15c3–3 that extensions of
time may only be granted under
‘‘exceptional circumstances.’’ 15
NASD will announce the effective
date of the proposed rule change in a
Notice to Members to be published no
Memorandum 05–78 (October 12, 2005)
(establishing pilot for reporting additional fields for
extension requests).
13 NASD anticipates requiring clearing firms to
identify in the monthly report those introducing
firms that have overall ratios exceeding 2%
consistent with NYSE requirements,
notwithstanding that the proposed limitations for
introducing firms would not be triggered until the
ratio exceeds 3%. The 2% threshold would provide
NASD with an ‘‘early warning’’ notice as to the
concentrations of extensions for these introducing
firms. In the event NASD adjusts the 1% or 3%
thresholds for imposing limitations, or the 2% filing
threshold, in the future, it would advise members
of the new parameters in a Notice to Members.
14 For example, if an introducing firm exceeds the
applicable threshold for the month of January, its
clearing firm would report that fact to NASD by
February 5. NASD would advise the introducing
firm that it had exceeded its threshold and that it
must reduce the number of subsequent requests
below the limit by the end of February. If the
introducing firm exceeds the applicable threshold
for the month of February, its clearing firm would
report that fact to NASD by March 5 and the 90day suspension would start at that time.
15 In the event NASD adjusts these parameters in
the future, it will advise its members by means of
a Notice to Members.
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later than 60 days following
Commission approval. To give members
sufficient time to make necessary
changes to their systems that may be
required to comply with proposed Rule
3160, the effective date will be at least
60 days following publication of the
Notice to Members announcing
Commission approval.16
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,17 which
requires, among other things, that
NASD’s rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. NASD believes that the
proposed rule change will further
ensure that firms are complying with
financial responsibility rules and
preventing the excessive use of credit
for the purchase or carrying of
securities.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASD does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, as amended, or
16 NASD also filed for immediate effectiveness a
proposed rule change to amend Section 8 of
Schedule A to NASD’s By-Laws to increase the
service charge for processing extension requests to
$4.00 per request. The effective date of the service
charge increase was July 1, 2006. See Exchange Act
Release No. 53982 (June 14, 2006), 71 FR 35720
(June 21, 2006) (Notice of Filing and Immediate
Effectiveness of SR–NASD–2006–063).
17 15 U.S.C. 78o–3(b)(6).
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45881
(B) Institute proceedings to determine
whether the proposed rule change, as
amended, should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an E-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2006–064 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASD–2006–064. This file
number should be included on the
subject line if E-mail is used. To help
the Commission process and review
your comments more efficiently, please
use only one method. The Commission
will post all comments on the
Commission’s Internet Web site (http://
www.sec.gov/rules/sro.shtml). Copies of
the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of NASD. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASD–2006–064 and
should be submitted on or before
August 31, 2006.
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45882
Federal Register / Vol. 71, No. 154 / Thursday, August 10, 2006 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6–13007 Filed 8–9–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54268; File No. SR–NASD–
2006–078]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment Nos. 1
and 2 Thereto Regarding the Pricing
Schedule for NASD Members Using the
Nasdaq Market Center and Nasdaq’s
Brut and Inet Facilities
August 3, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’), filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by Nasdaq. On July
25, 2006, Nasdaq filed Amendment No.
1 to the proposed rule change. On July
26, 2006, Nasdaq filed Amendment No.
2 to the proposed rule change. Nasdaq
filed the proposed rule change pursuant
to Section 19(b)(3)(A)(ii) of the Act,3
and Rule 19b–4(f)(2) thereunder,4 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq Market Center and Nasdaq’s
Brut and Inet Facilities (‘‘Nasdaq
Facilities’’).5 Nasdaq states that it will
implement the proposed rule change on
July 3, 2006. The text of the proposed
rule change, as amended, is set forth
below. Proposed new language is in
italic; proposed deletions are in
[brackets].6
7010. System Services
(a)–(h) No change.
(i) Nasdaq Market Center, Brut, and
Inet Order Execution and Routing
(1)–(5) No change.
(6) Except as provided in paragraph
(7), the following charges shall apply to
the use of the order execution and
routing services of the Nasdaq Facilities
by members for securities subject to the
Consolidated Quotations Service and
Consolidated Tape Association plans
other than Exchange-Traded Funds
(‘‘Covered Securities’’):
Nasdaq proposes to modify the
pricing for NASD members using the
ORDER EXECUTION
Order that accesses the Quote/Order of a Nasdaq Facility market participant:
Charge to member entering order .......................................................................................................................
Credit to member providing liquidity:
Members with an average daily volume through the Nasdaq Facilities in Covered Securities during the
month of more than 5 million shares of liquidity accessed, provided, or routed but less than 10 million
shares of liquidity provided.
Members with an average daily volume through the Nasdaq Facilities in Covered Securities during the
month of 10 million or more shares of liquidity provided.
Other members ....................................................................................................................................................
$0.0007 per share executed.
$0.0005 per share executed.
$0.0006 per share executed.
No credit.
ORDER ROUTING
Order routed to Amex ...............................................................................
Order routed through the ITS ...................................................................
Order routed to NYSE ..............................................................................
Order for NYSE-listed Covered Security routed to venue other than the
NYSE.
Order for Covered Security listed on venue other than the NYSE and
routed to venue other than Amex.
$0.003 per share executed.
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of and basis for the
proposed rule change, as amended, and
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(7)–(9) No change.
(j)–(y) No change.
*
*
*
*
*
$0.003 per share executed (plus, in the case of orders charged a fee
by the Amex specialist, $0.01 per share executed).
$0.0007 per share executed.
See DOT fee schedule in Rule 7010(i)(7).
$0.001 per share executed.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 The Commission notes that Nasdaq filed a
proposed rule change to apply the same pricing
1 15
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discussed any comments it received on
the proposed rule change, as amended.
The text of these statements may be
examined at the places specified in Item
IV below. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
change to non-members. See Securities Exchange
Act Release No. 54269 (August 3, 2006) (File No.
SR–NASD–2006–079).
6 Changes are marked to the rule text that appears
in the electronic NASD Manual found at
www.nasd.com, as further amended on an
immediately effective basis by SR–NASD–2006–057
(May 1, 2006). Prior to the date when The NASDAQ
Stock Market LLC (‘‘NASDAQ LLC’’) commences
operations, NASDAQ LLC will file a conforming
change to the rules of NASDAQ LLC approved in
Securities Exchange Act Release No. 53128 (January
13, 2006), 71 FR 3550 (January 23, 2006) (File No.
10–131).
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Agencies

[Federal Register Volume 71, Number 154 (Thursday, August 10, 2006)]
[Notices]
[Pages 45879-45882]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-13007]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54265; File No. SR-NASD-2006-064]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto Relating To Extension of Time Requests
August 2, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 15, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by NASD. On May 25,
2006, NASD filed Amendment No. 1 to the proposed rule change.\3\ On
July 25, 2006, NASD filed Amendment No. 2 to the proposed rule
change.\4\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, NASD made non-substantive changes to the
discussion of the purpose of the proposed rule change.
\4\ Amendment No. 2 replaces and supersedes the original
proposed rule filing and Amendment No. 1 in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to adopt new Rule 3160 to require (1) all
clearing firm members for which NASD is the designated examining
authority (``DEA'') pursuant to Rule 17d-1 under the Act to submit to
NASD requests for extensions of time under Regulation T promulgated by
the Federal Reserve Board (``FRB''), or pursuant to Rule 15c3-3(n)
under the Act; and (2) each clearing firm member for which NASD is the
DEA to file a monthly report with NASD indicating all broker-dealers
for which it clears that have overall ratios
[[Page 45880]]
of requested extensions of time to total transactions for the month
that exceed a percentage specified by NASD. Below is the text of the
proposed rule change. Proposed new language is in italics.
* * * * *
3160. Extensions of Time Under Regulation T and SEC Rule 15c3-3
(a) When NASD is the designated examining authority pursuant to SEC
Rule 17d-1 for a member that is a clearing firm, such member must
submit requests for extensions of time as contemplated by Sections
220.4(c) and 220.8(d) of Regulation T of the Federal Reserve Board and
SEC Rule 15c3-3(n) to NASD for approval, in such format as NASD may
require.
(b) Each member that is a clearing firm for which NASD is the
designated examining authority is required to file a monthly report
with NASD in such format as NASD may require, indicating all broker-
dealers for which it clears that have overall ratios of requests for
extensions of time as contemplated by Sections 220.4(c) and 220.8(d) of
Regulation T of the Federal Reserve Board and SEC Rule 15c3-3(m) to
total transactions for the month that exceed a percentage specified by
NASD. The report is due to NASD within five (5) business days following
the end of each reporting month.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASD has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
Regulation T, issued by the Board of Governors of the Federal
Reserve System (``FRB'') pursuant to the Act, among other things,
governs the extension of credit to customers by broker-dealers for
purchasing securities.\5\ Rule 15c3-3 under the Act, among other
things, requires broker-dealers to promptly obtain and maintain
physical possession or control of customer securities and designates
periods of time within which broker-dealers must cure any deficiency by
buying-in or otherwise obtaining possession or control of the
securities.\6\ Under SEC Rule 15c3-3(n), a self-regulatory organization
(SRO) may extend certain specified periods to buy-in a security, for
one or more limited periods commensurate with the circumstances, where
the SRO: (1) Is satisfied that the broker-dealer is acting in good
faith in making the request; and (2) exceptional circumstances warrant
such action.\7\ Regulation T has a similar standard to allow an
extension of time for payment for purchases of securities.\8\ The SROs
that process extension requests, including NASD, have developed
standards and procedures for evaluating, granting, denying, and
controlling extension requests. The standards include acceptable
reasons for requesting an extension, number of extensions permitted per
reason, and special limitations and restrictions on customers.\9\
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\5\ 12 CFR 220.4(c) and 220.8(d). Regulation T provides that a
customer has one payment period (currently five business days) to
submit payment for purchases of securities in a cash account or in a
margin account.
\6\ 17 CFR 240.15c3-3.
\7\ See Rule 15c3-3(n), authorizing SROs to extend the periods
of time to buy-in a security specified in Rule 15c3-3(d)(2), (d)(3),
(h), and (m).
\8\ Under Regulation T, a firm's examining authority may grant
an extension unless the examining authority believes that the
broker-dealer is not acting in good faith or that the broker-dealer
has not sufficiently determined that exceptional circumstances
warrant such action.
\9\ See NASD Notice to Members 00-45.
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Required Submissions of Requests for Extensions of Time
Proposed NASD Rule 3160(a) would require all clearing firm members
for which NASD is the designated examining authority (``DEA'') to
submit to NASD requests for extensions of time under Regulation T and
SEC Rule 15c3-3(n). While Regulation T currently requires that
extension of time requests be directed to a broker-dealer's DEA, Rule
15c3-3(n) provides that a broker-dealer may request an extension of
time from any registered national securities exchange or a registered
national securities association.
The SEC previously approved NYSE Rule 434 requiring each firm for
which the NYSE is the DEA to submit extensions requests to the
NYSE.\10\ The SRO designated as a member's DEA has responsibility for
examining its members that are also members of another SRO for
compliance with applicable financial responsibility rules such as
Regulation T and Rule 15c3-3. Requiring a member to submit extension
requests to its DEA helps to ensure that the DEA receives complete
extension information to assist it in performing this function. Such
information, among other things, can serve as an early indicator of
operational or other difficulties. Approval of the proposed rule change
also would ensure uniform application of standards to all customers of
firms for which NASD is the DEA. For these reasons, NASD believes that
this proposed rule change would create a more effective review of
extension requests.
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\10\ See Exchange Act Release No. 34073 (May 17, 1994), 59 FR
26826 (May 24, 1994) (SR-NYSE-88-35) (SEC Order Approving Proposed
Rule Change by the NYSE Relating to Extensions of Time for Payment
of Delivery of Securities). See also NYSE Information Memo 94-22
(June 10, 1994).
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Monthly Reporting Requirement
Proposed NASD Rule 3160(b) would require each clearing firm member
for which NASD is the DEA to file a monthly report with NASD, in such
format as NASD may require, indicating all broker-dealers for which it
clears that have overall ratios of requests for extensions of time as
contemplated by Sections 220.4(c) and 220.8(d) of Regulation T of the
Federal Reserve Board and SEC Rule 15c3-3(m) to total transactions for
the month that exceed a percentage specified by NASD.\11\ The monthly
report will require clearing firms subject to proposed Rule 3160(b) to
identify, among other things: (1) The broker-dealer's name; (2) the
number of transactions by the broker-dealer for the month; (3) the
number of extension requests for the month; and (4) the ratio of the
number of extensions requested to total transactions. Under the
proposal, NASD would require that the reports be submitted no later
than five business days following the end of each reporting month. For
months when no broker-dealer exceeds the criteria, the clearing firm
would submit a report indicating such.
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\11\ Rule 15c3-3(m) (Completion of Sell Orders on Behalf of
Customers) requires that if a security sold long by a customer has
not been delivered within 10 business days after the settlement
date, the broker-dealer must either buy the customer in or apply for
and receive an extension from the SRO.
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Consistent with the NYSE's program,\12\ NASD anticipates
restricting
[[Page 45881]]
the number of Regulation T and Rule 15c3-3(m) extension requests to 1%
of total transactions for the month for clearing firms and 3% of total
transactions for the month for introducing firms.\13\ NASD currently is
able to compute the ratio of extensions requested to transactions for
clearing firms based on information provided in the extension requests
and FOCUS report data; however, NASD would use the information
submitted by the clearing firms in the new monthly report to monitor
introducing firms' compliance with the anticipated 3% threshold. NASD
is creating a new template within its existing electronic filing
platform to permit clearing firms to submit the required electronic
reports regarding their introducing firms' extension requests.
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\12\ See Exchange Act Release No. 28726 (December 28, 1990), 56
FR 540 (January 7, 1991) (SR-NYSE-89-24) (SEC Order Approving NYSE
Proposed Rule Change Relating to Reporting of Extensions of Time for
Payment/Delivery of Securities by Correspondent Broker-Dealers);
NYSE Information Memoranda 98-09 (March 5, 1998) and 94-22 (June 10,
1994); see also NYSE Information Memorandum 05-78 (October 12, 2005)
(establishing pilot for reporting additional fields for extension
requests).
\13\ NASD anticipates requiring clearing firms to identify in
the monthly report those introducing firms that have overall ratios
exceeding 2% consistent with NYSE requirements, notwithstanding that
the proposed limitations for introducing firms would not be
triggered until the ratio exceeds 3%. The 2% threshold would provide
NASD with an ``early warning'' notice as to the concentrations of
extensions for these introducing firms. In the event NASD adjusts
the 1% or 3% thresholds for imposing limitations, or the 2% filing
threshold, in the future, it would advise members of the new
parameters in a Notice to Members.
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To the extent that firms exceed the proposed threshold limits, NASD
will inform them that their ability to receive extensions for their
customers will be stopped for a 90-day period if such firm does not
reduce the number of subsequent requests below the applicable limit by
the next reporting period.\14\ NASD also intends to direct clearing
firm members to impose limits on introducing firms only where the
introducing firm engages in 25 or more transactions per month. NASD
believes that these limits are appropriate in light of the standard set
forth in Regulation T and Rule 15c3-3 that extensions of time may only
be granted under ``exceptional circumstances.'' \15\
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\14\ For example, if an introducing firm exceeds the applicable
threshold for the month of January, its clearing firm would report
that fact to NASD by February 5. NASD would advise the introducing
firm that it had exceeded its threshold and that it must reduce the
number of subsequent requests below the limit by the end of
February. If the introducing firm exceeds the applicable threshold
for the month of February, its clearing firm would report that fact
to NASD by March 5 and the 90-day suspension would start at that
time.
\15\ In the event NASD adjusts these parameters in the future,
it will advise its members by means of a Notice to Members.
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NASD will announce the effective date of the proposed rule change
in a Notice to Members to be published no later than 60 days following
Commission approval. To give members sufficient time to make necessary
changes to their systems that may be required to comply with proposed
Rule 3160, the effective date will be at least 60 days following
publication of the Notice to Members announcing Commission
approval.\16\
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\16\ NASD also filed for immediate effectiveness a proposed rule
change to amend Section 8 of Schedule A to NASD's By-Laws to
increase the service charge for processing extension requests to
$4.00 per request. The effective date of the service charge increase
was July 1, 2006. See Exchange Act Release No. 53982 (June 14,
2006), 71 FR 35720 (June 21, 2006) (Notice of Filing and Immediate
Effectiveness of SR-NASD-2006-063).
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2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among
other things, that NASD's rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change will
further ensure that firms are complying with financial responsibility
rules and preventing the excessive use of credit for the purchase or
carrying of securities.
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\17\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, as amended, or
(B) Institute proceedings to determine whether the proposed rule
change, as amended, should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
Send an E-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2006-064 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-064. This file
number should be included on the subject line if E-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of NASD. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-NASD-2006-064 and should be submitted on or before August 31, 2006.
[[Page 45882]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-13007 Filed 8-9-06; 8:45 am]
BILLING CODE 8010-01-P